Correlation Between GOODYEAR T and SWISS WATER

Can any of the company-specific risk be diversified away by investing in both GOODYEAR T and SWISS WATER at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GOODYEAR T and SWISS WATER into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GOODYEAR T RUBBER and SWISS WATER DECAFFCOFFEE, you can compare the effects of market volatilities on GOODYEAR T and SWISS WATER and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GOODYEAR T with a short position of SWISS WATER. Check out your portfolio center. Please also check ongoing floating volatility patterns of GOODYEAR T and SWISS WATER.

Diversification Opportunities for GOODYEAR T and SWISS WATER

0.27

Correlation Coefficient

GOODYEAR T  SWISS WATER

Modest diversification

The 3 months correlation between GOODYEAR and SWISS is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding GOODYEAR T RUBBER and SWISS WATER DECAFFCOFFEE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWISS WATER DECAFFCOFFEE and GOODYEAR T is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on GOODYEAR T RUBBER are associated (or correlated) with SWISS WATER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWISS WATER DECAFFCOFFEE has no effect on the direction of GOODYEAR T i.e., GOODYEAR T and SWISS WATER go up and down completely randomly.

Pair Corralation between GOODYEAR T and SWISS WATER

Assuming the 90 days trading horizon GOODYEAR T RUBBER is expected to generate 0.97 times more return on investment than SWISS WATER. However, GOODYEAR T RUBBER is 1.03 times less risky than SWISS WATER. It trades about 0.09 of its potential returns per unit of risk. SWISS WATER DECAFFCOFFEE is currently generating about -0.06 per unit of risk. If you would invest  789.00  in GOODYEAR T RUBBER on October 26, 2024 and sell it today you would earn a total of  111.00  from holding GOODYEAR T RUBBER or generate 14.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

GOODYEAR T RUBBER  vs.  SWISS WATER DECAFFCOFFEE

GOODYEAR T RUBBER

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GOODYEAR T RUBBER are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GOODYEAR T unveiled solid returns over the last few months and may actually be approaching a breakup point.

SWISS WATER DECAFFCOFFEE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SWISS WATER DECAFFCOFFEE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GOODYEAR T and SWISS WATER

The main advantage of trading using opposite GOODYEAR T and SWISS WATER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GOODYEAR T position performs unexpectedly, SWISS WATER can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SWISS WATER will offset losses from the drop in SWISS WATER's long position.

The idea behind GOODYEAR T RUBBER and SWISS WATER DECAFFCOFFEE pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.